Millennials are doing things differently than previous generations, especially when it comes to homeownership. Compared to just a couple decades ago, first-time home buyers today are delaying home purchases and renting for longer – and most are millennials. The low rates of homeownership in this demographic have been primarily blamed on overwhelming debt from student loans. After all, Americans owe a combined $1.2 trillion in student debt. While student loan debt can impact an individual’s ability to save for a down payment or qualify for a mortgage, new data suggests it is a myth that student debt is the reason homeownership rates are low among recent graduates.
As long as you get a four-year degree or higher, the effect of student debt is actually negligible on your probability of becoming a homeowner. If you obtain a bachelor’s degree with no student debt, you have a 70 percent probability of owning your home. Someone who graduates with the same degree and $50,000 of student loans has a 66 percent probability. The likelihood of homeownership only drops a measly 4 percent even with $50,000 of undergraduate debt.

For married couples, the key is getting at least one degree between the pair. If at least one spouse has a bachelor’s degree and no student debt, the couple’s probability of homeownership is 69.8 percent. Add in $30,000 of student debt for that degree and the probability drops a mere 2.1 percentage points. Getting approved for a loan or saving for a down payment might take time but the research shows student debt isn’t a major hurdle in homeownership, whether you’re married or single.

Graduate school loans have an equally minor effect on homeownership. Obtaining a masters, medical, law or doctorate degree actually insulates you from the adverse effect of student debt when you buy. The probability of homeownership is highest for individuals with a doctorate and no student debt; they have an 87 percent chance of owning homes. That likelihood only drops to 84 percent if the individual incurred $50,000 of student loans obtaining the doctorate. At the master’s degree level the probability falls from 80 percent if you have no debt, versus 75 percent with $50,000 in student loan debt. Getting an advanced degree increases your overall likelihood of owning a home, despite the small negative impact student loans have on your probability of homeownership.

Individuals with an associate’s degree or no degree are impacted the most by student debt. The probability of homeownership drops from 73 to 57 percent if you obtain an associate’s degree with no student loans versus carrying $50,000 of debt. And for those with no degree, homeownership probability is even lower. The probability of homeownership is 48 percent for an individual with no degree and no student debt and declines steadily with the debt amount. Getting at least a four-year degree significantly increases your odds of owning a home.

The outlook is positive for millennials who want to become homeowners. Not only should student loans have a minor effect on ownership, the research reveals millennials who put down 5 percent and spend 30 percent of their income on a mortgage can afford 70 percent of for-sale homes on the market. While this inventory isn’t spread evenly across the country, buyers who focus on properties in the Midwest and South can afford as much as 86 percent of the for-sale homes. In major metro areas, the pickings are much slimmer; millennials can only afford 25 percent of the inventory in Los Angeles and 27 percent in San Diego. Location is key to affordability, especially for individuals also balancing student loan debt.

Recent graduates should not shy away from exploring their options. It’s surprising how many homes millennials can actually afford, despite their student loan debt.

“There are two ways to enslave a nation. One is by the sword. The other is by debt.” There is an ongoing debate on the internet about whether or not that quote was first said by John Adams. Regardless, the quote is very powerful with its meaning. Debt is slavery. With debt you are controlled by the person in which you owe. If you don’t believe me, stop paying your monthly payments on your house, car, or other loans. The bank or other creditor will come along and seize that asset from you or other assets that have been used as collateral. Debt is very powerful and can take a massive financial and psychological toll on us. Paying off our debt can lead to previously unfathomed levels of financial freedom and happiness. I’ve started Young and Wealthy Living to help others realize this dream.

Today, we will observe multiple methods that can be used to pay off different types of debt faster by taking various steps.

The Debt Portfolio

If you’re like most people, you have many different forms of debt. These could be a credit card balance, mortgage, student loans, car payments, or personal loans. If you are looking to make more than just your monthly payments on these loans, I commend you, this is the first step to finally becoming debt free. But you may be wondering, which loans should I put the extra payments toward? To answer this we will use the debt stacking method, as I strongly believe that this is the best way to attack debt. It’s very simple and straightforward. Put extra payments to the debt with the highest interest rate and pay the minimum payments on the rest of the debts. The reason this method works is that over time you will be able to accelerate how quickly all of your debt will be paid off since more and more of your payments will be going towards the principle instead of the interest. Using the debt stacking method you will pay less in total interest and you will have all of your debts paid off faster than if you just used the shotgun approach on your debt.

Student Loans

If you’re like me, you graduated with student loans consisting of private and federal loans. My student loans ranged from 3% interest to 6.8% interest. If you plan on taking the full ten years to pay off your student loans, you could be paying thousands of dollars in interest alone over this time period. If I had only been making the minimum payments on my loans I would have paid over $10,000 in interest alone. To help lower your monthly payments and literally save yourself potentially thousands of dollars in interest, you can consolidate all of your loans into one loan. Yes, you read that correctly. Not only does this give you only one loan to have to keep track of and remember to pay, but it would most likely lower your interest rate and save you money. A couple of good resources for this are Sofi and Earnest. You can also check with local credit unions as many of them offer this service as well. There are a couple things to note, however. First, many services will require that you be employed or have an offer of employment and some might require that you have an emergency fund setup. Continue to make the larger payments you had before consolidating and you will have your student loans paid off ahead of time!

Credit Cards

The average credit card debt for American adults with a credit card is $5,047 according to creditcards.com. Unfortunately, credit card debt is usually the most painful because it typically carries the highest interest rate of debts people are likely to have. It is not unlikely to see credit cards with an APR of 15% to 24%. If you are carrying a large balance on your credit card you can expect to pay thousands of dollars in interest before your card is paid off and have it take years to do. The key to lowering your payments on the credit card debt is to lower your interest rate. This will allow you to pay off that debt faster and potentially saving you thousands in interest payments.

The first method here if you have a high credit card balance and are struggling to make your payments is to transfer your balance to a new card that offers an introductory offer of 0% interest on balance transfers. A couple of great cards for this are the Chase Slate and Discover It cards. This introductory rate is only good for a period of time however, typically 12 to 21 months, before it increases to the typical 15% – 24%, so you should be paying as much as possible during this time as 100% of your payments would be going towards the principle. Again, there are a couple things to note here. Sometimes there is a fee to transfer a balance, oftentimes of 3% – 5% and you will need good to excellent credit to qualify for the best offers.

Another method you should try if you have not already: simply ask. Just call up the credit card company, be very polite, and explain to them that you would love to pay off your credit card debt but the current interest rate makes it very difficult for you to make extra payments. Then ask them if they could lower your interest rate for you. You may initially get a ‘no’ but it is very likely that you will need to go through several people in the company before you reach someone that has the authority to negotiate this. Just remember to be polite to the person on the other end of the phone and they will be willing to pass you along to someone who can help.

You may think the credit card company doesn’t care about you and if you can make your payments or not. But the truth is they absolutely want you to make your payments and have a payment plan you can afford. They would much rather work with you and have you pay off your debt than to sell your debt to a collections company for pennies on the dollar.

Of course, these are not the only methods you can use to decrease payments and pay debt off faster but we all have our favorites and those we believe to be the most effective. Recognize how debt has the ability to control you and make a plan to attack it and you will be well on your way to wiping out your debt and becoming debt free! Feel free to share your debt elimination plans and stories with me by emailing me at nic@youngandwealthyliving.com. Together we can conquer our debt and be on the path to financial freedom!

Could the landscape of student loan repayment be changing? I have to admit, I don’t cover a whole lot of college topics here (because I’m a bit removed from that age group), so I almost missed this altogether. But, it kept coming through on feeds, and it finally piqued my interest enough to get me to take a look. I’m glad I did, because it’s actually gaining traction and could be something that becomes normal in the years to come.

What is the Oregon Pay it Forward loan repayment plan?

Pay it Forward seems to have had an interesting life cycle. It was originally devised by a class of college students, working with the Economic Opportunity Institute, and then presented to the state legislature. From there, it appears that the Working Families Party of Oregon, who happen to have been co-founded by the students’ teacher, took it under their wing and started pushing it. According to this article in the New York Times, the resulting bill passed the Oregon House and Senate earlier this month.

From there, I would imagine that it’s got all kinds of structural work to be done in order to put the systems and processes in place to be fully functional. But, once that’s done, it should become available to students in a few select universities and colleges sometime around 2015.

The plan, as it’s stated on the Working Families Party of Oregon website, will operate with a dedicated fund from which the tuition will be paid to the school. After the student graduates, and gets a job, the student will then pay a fixed % of their salary back into the fund for 20 years. The % that the graduate pays will depend on how much schooling they’ve received.

Under the proposed system, you would pay .75% of your adjusted gross income (AGI) for each year of school, or 45 credits. This means a student who goes for a 2-year degree would pay 1.5% of their AGI per year, while a student seeking a 4-year degree would pay 3%.

That should account, mostly, for the discrepancies of cost in tuition from a two-year degree vs. a full four-year degree. The website also states that should a graduate be unemployed, there would be no repayment necessary until the graduate attains a job.

Is the Oregon Pay it Forward plan a good idea?

In my opinion, it’s both good and bad. It all depends on how you look at it, really. If you’re like me, and intend to work in a profession that basically requires a degree of some sort to even get your foot in the door, it could be a really good deal. Heck, I’ve been out of college for 7 years. Almost half way to their repayment period. I’m not even close to half way to the end of my student loans, yet.

So, in that way, the plan might be a good thing. It lowers the financial barrier to higher education, and makes less of a burden of the repayment of any tuition bills. The lowering of barriers is also why I think it could end up being a bad thing.

Part of the reason that I think the higher education system is under so much fire is because it’s already too easy to get a student loan and go to college. If anyone can do it, suddenly everyone must do it. If you want any sort of foothold in the professional community of your choice, you’ll need that degree. That causes problems. Demand for a college education never decreases. The law of supply and demand says that the supplier (colleges in this case) can charge whatever the market will bear based on the fluctuations of demand. If demand decreases, so too should supply. If you want demand to increase, you reduce the cost of whatever you’re selling until demand begins rising again. But, if demand never decreases, why should the cost of the education? The supply of college attending students increases, increasing the demand for classrooms to teach them in and professors to teach them with. School expenses increase due to the new buildings and additional staff. If the fund for the plan doesn’t keep up, the money has to come from somewhere else. Know where? The state. More specifically, the taxpayers of the state.

It’s too early to pass judgement on whether the plan will work or not. Heck, the ink is barely dry on the bill itself. It’s still got all kinds of tape to work it’s way through before it can begin being used. I doubt that we’ll see any real results aside from an increased enrollment in the schools that pilot the program for at least 5-10 years. Remembering that repayment likely won’t start for 4 years from the first enrollment.

I think it’s clear that the current state of student loans and their repayment needs to be reworked. It’s unclear, however, whether this plan is the right answer. It might be part of the answer though. Combine something like it with a more rigorous acceptance process, and you might have a winner.

What do you think? Is Oregon changing student loan payment forever? Is the program the right answer? What would you change? Would you have used it if you had the opportunity when you enrolled in college? (I would have)

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